January 2010 Issue

Energy and its availability cannot be taken for granted even in the best of times. This issue of the Journal of Energy Security reflects this reality on a multitude of fronts. We often take for granted those things best known to us. In the energy sphere this includes the relationship of the United States with Mexico as its third largest supplier of oil. The ability of Mexico to deliver ever increasing volumes of this liquid hydrocarbon to the US market is being thrown into jeopardy due to a variety of factors: geologic exhaustion, technical inefficiencies, managerial ineptness, and corruption which is often the bane of resource-rich nations. Jeremy Martin enlightens us on the future of the US-Mexican relationship in oil with a studied look at the future of this relationship and what it means for US oil supply security.

Another key energy issue often overlooked but altogether important for a greener and cleaner energy future are rare earth elements. These 17 distinctly unique elements are critically important as inputs into both military and civilian technologies that make our world both safer and less carbon intensive. Yet the vast majority of these elements are mined in China and the Chinese, albeit for their own domestic purposes, are cutting back on the availability of these materials to world markets. While countries such as South Africa and the United States have minable deposits of many of these elements governments and markets alas have been slow to respond. Jack Lifton, a Senior Fellow with the Institute for the Analysis of Global Security, fills us in on the dilemma this presents and what, by way of example, the US Congress might do to remedy the situation. As an addendum, over 17-18 March IAGS is co-sponsoring an international conference in Washington, D.C. along with the International Lithium Alliance, to explore the issue of rare earths in more detail.

IAGS, the publisher of the JES, announced this past month the launch of a new ‘Mobility Coalition’ to complement its strong push to provide alternatives in the fuels’ market with a blueprint to provide alternatives in transportation modalities. The mobility coalition is dedicated to making sure consumers ‘get what they pay for and pay for what they get’ in physically transporting themselves, their goods and services in smarter ways that reduce America’s dependence on foreign oil. This blueprint, in its entirety, is presented herein.

Returning to China (but not to the issue of rare earths), the Chinese have been on the march over the past month bringing to fruition years of planning and preparation to further tap Russian and Central Asian hydrocarbon resources. The results are impressive and should alert other net energy consuming nations to their ability to persevere and secure their own hydrocarbon supply and in doing so Chinese energy security. Finally, the Organization for Security and Cooperation in Europe has been mandated to look into energy security and to examine where it might add value to dialogue among nations on the issue. It turns out their unique mandate, and membership involving some of the world’s largest energy producers and consumers, may advance forward the oft-wanting producer-consumer dialogue and the development of intelligence products both energy producers and consumers could benefit from.

Chinese competition for Russian and Central Asian oil and gas has been accelerating for years. Instead of Western-style wrangling about government subsidies, hand-wringing about whether their actions reflect free-market economics, or in worrying about the projected future value of present hydrocarbon goods (exhaustively finite) the Chinese are busy securing their own energy future and in doing so in shaping ours.

The OSCE is the world's largest regional security organization whose 56 participating States span the geographical area from Vancouver to Vladivostok. Over the past several years the organization has intensified its focus on the issue of energy security. In January 2010 Kazakhstan will be the first non-European country to chair the organization. Kazakhstan has already pledged to focus on energy transit issues within the energy security block of issues. Critical energy infrastructure protection may be a key area where the organization can make a tangible contribution to its member-states’ security.

IAGS, publisher of the Journal of Energy Security, has announced a new initiative to reduce oil's strategic importance. IAGS has long focused on public policy initiatives to expand fuel choice for businesses and consumers. The Mobility Choice Coalition complements this effort by focusing on competition among transportation modes. More information on Mobility Choice can be found at www.mobilitychoice.org.

Rare earth metals are important to the world’s ability to pursue a low carbon future because many of the enabling technologies, such as wind turbines, advanced automotive batteries, energy efficient light bulbs, and solar panels require these select materials for their manufacture. For national defense purposes, a proposed bill in the US Congress entitled the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2009 (RESTART ACT) reads that, “Many modern defense technologies such as radar and sonar systems, precision guided weapons, cruise missiles, and lasers cannot be built, as designed and specified, without the use of rare earth elements (REEs) and materials produced from them.” In short, rare earths are important not only for the production of environmentally sustainable products and technologies but for national defense as well. Rare earths elements are, alas, limited in their distribution. While the United States owns at least 15% of the world’s REEs reserves, it now depends nearly 100% upon imports for rare earth elements, oxides, and alloys because there are virtually no active REE producers in the United States. More than 95% of all REEs for world consumption are produced in China.

Russia and Iran are two of the world’s energy powers if measured by their proven reserves of oil and gas. In oil, Iranian reserves are nearly double those of Russia yet Russia on any given day is the world’s largest oil producer. There are any number of reasons which explain this dichotomy. These include the fact that Iran, not Russia, is an OPEC member and therefore its oil production is limited by the OPEC cartel’s production quota system. Second, Iran is isolated and ostracized by the international community given the state’s sponsorship of terrorism and its determination to build a domestic nuclear program and with it the value-added of weapons grade nuclear materials. Further, Iranian oil fields suffer from high inefficiencies due to lack of access to new technology, know how, and foreign investment all which would be forthcoming had it not positioned itself as a pariah to peace and a threat to its Middle Eastern neighbors including on the one hand Saudi Arabia and at the other end of the spectrum Israel.

In gas, the situation is the opposite. Russia’s reserves of natural gas are approximately 27% of proven global reserves with Iranian reserves at approximately 15%. Together, should these gas giants join forces, as they have threatened to do through the Gas Exporting Countries Forum (GECF), they would hold considerable sway over global gas supplies at least on a regional basis. And this is the key point. Why does the Russian Federation as a full member of the UN Security Council often act as a key arbitrator seemingly on Iran’s behalf in moderating international sanctions on Iran when Iran itself is more geographically proximate to Russia than Paris, London or Washington? Viewed against the backdrop of the Obama administration’s September release of an intelligence report citing the discovery of the Fordow Fuel Enrichment Plant, a secret nuclear enrichment site near Iran’s holy city of Qom in Iran, Emanuele Ottolenghi helps explain the nuances in the Russian-Iranian relationship with a view towards oil and gas through the lens of this most recent Iranian nuclear dispute.

US vulnerability to dwindling Mexican oil exports is growing. The US-Mexican relationship in oil has long been a collaborative one. Over the early part of this decade, as US demand grew, so did Mexican exports to the US mainland—a relationship author Jeremy Martin calls an “oil symbiosis made in heaven.” Since 2007, however, Mexican production has been falling. An uncomfortable redefinition of this symbiotic relationship may be unavoidable in the near future if Mexico’s oil majors cannot sort out their own problems.

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